Washington — The rate at which students default on federal student loans has risen for a second year in a row, from 5.2 percent to 6.9 percent, preliminary data from the Education Department indicate.
In all, 231,659 students who entered repayment on their student loans in the 2007 fiscal year defaulted within the next two years, the draft data show. As usual, the rate was higher for students who attended for-profit institutions (11.3 percent) than for students who attended public colleges (6.1 percent) or private colleges (3.8 percent). However, the rate at which students defaulted in all three sectors increased by a similar amount: 1.3 to 1.6 percentage points.
The default rate was two percentage points higher for borrowers in the bank-based guaranteed-student-loan program (7.3 percent) than those in the direct-loan program (5.3 percent). Last year those rates were 5.3 percent and 4.7 percent, respectively.
The release of the draft default rates comes a day after a key committee in the U.S. House of Representatives approved a bill that would ease passage of President Obama’s plan to end the guaranteed-loan program. Shortly after the numbers were released, the House education committee’s chairman, Rep. George Miller, a Democrat of California, issued a news release drawing attention to the discrepancy between the default rates for guaranteed and direct lending.
Lenders quickly countered that the numbers were flawed, failing to take into account hundreds of thousands of borrowers in the bank-based program. And they questioned the department’s motives in releasing draft data now, noting that the agency rarely publishes preliminary default rates and has not published a comparison of the direct-loan and guaranteed-loan programs for several years. Typically, the final default rate for a given cohort of students is published in September.
Cohort default rates are expected to go still higher in the coming years, when new rules requiring the department to calculate them based on three years after graduation, rather than two, go into effect. Congress extended the measurement window last year, in legislation reauthorizing the Higher Education Act, but also raised the threshold above which colleges are sanctioned for having high default rates, from 25 percent to 30 percent. —Kelly Field
